The government today indicated "aggressive" easing of interest rates and "fast-tracking" reforms to offset the impact of global turmoil on the growth which is expected to moderate to around 7% this fiscal besides inflation returning to "normal levels" by March.
The Mid-Year Review of the economy presented to Parliament said, "There is a considerable scope for monetary policy easing over the next six to 12 months to offset the global increase in demand for money that is being transmitted to India... An aggressive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing."
Following cuts in the policy rates by RBI, several banks have already reduced their lending rates giving relief to the hardpressed borrowers especially in the sectors including housing, exports, small and medium enterprises.
Through a slew of measures, the central bank has injected about Rs 3 lakh cr into the cash-strapped system.
Preparing the country for a "significantly" slower growth in the second half of the fiscal, the review projected economic expansion at around seven per cent for the year.
It attributed the moderation in growth from 9% in the previous fiscal to crisis in the industrialised countries affecting India's external sector including exports and capital flows.
On the positive side, the review said the decline in commodity and fuel prices will help bring the inflation to "normal" levels by March 2007. From a peak of 12.91% in August, the inflation has come down to 6.84% in early December.
Having introduced the insurance reforms bills, pending for four years, Government wants to "fast-track" the pending agenda to revert to 8.5 to 9% growth.